How big mining deal will sabotage America

Commentary: Ex-Im bank financing too risky for U.S. taxpayers

SAN LUIS OBISPO, Calif. (MarketWatch) — Yes, the proposed Export-Import Bank of the United States investment in a $10 billion Australian coal-mining deal is at best highly suspect, failing to use sound underwriting principles ... too secretive for general public scrutiny ... may contradict the best interests of American foreign policy.

And at worst, our Ex-Im Bank is putting hard-earned American dollars and credit into a mining deal in far-off Australia in what appears to be a poorly thought-out use of tax dollars, at a time when there’s a high risk of a global recession ... when our bloated federal budget is increasing an already excessive national debt, piling new hidden tax burdens on the backs of future generations of American taxpayers.

1. Mining joint venture too risky as global economies fear recession

Here’s the deal basic from LiveMint.com, an India News Service partner of the Wall Street Journal. Early this week the headline read: “Rineheart confident of GVK approval.” Turns out Australians had already been telling the world the American government has approved this $10 billion joint-venture deal between the Ex-Im banks of the U.S., China and Korea. Not true even before Friday’s announcement by Australia’s Federal Environmental Minister Tony Burke that the project could move ahead.

The Australians seem in too big a hurry. Listen: “Australian mining tycoon Gina Rinehart, one of the world’s richest women, said on [Aug. 19] that she is confident the GVK Group’s Alpha Coal and Rail project, in which she is a minority stakeholder, will receive stalled environmental clearances from the Australian federal government by August.” Bloomberg Billionaires Index lists Reinhart as one of the richest at $18.1 billion.

Rinehart’s “backing is crucial for the project in Queensland considering her influence in Australia’s mining industry. ... GVK got environmental clearance for the project from the Queensland government, but the approval process was halted by the federal government on June 5 on grounds that the earlier assessment lacked information including the likely impact on the Great Barrier Reef that lies off the Queensland region.”

2. U.S. tax dollars helping anti-environment Australian billionaire

When I was a Morgan Stanley investment analyst years ago, we were helping Japan’s largest trading company with real estate deals. A senior company officer was once visiting from Tokyo. Their company had just arranged a joint venture to acquire all the output of an Australian mining operation for 25 years. He laughed as he explained the Japanese translation of joint venture: “Dosho-mu, same bed, different dream.”

Well, here America’s going to bed with China and Korea as well as Australia, and it smells fishy.

Unfortunately, this Australian dream project may become a nightmare for America as well as Australia. Rinehart apparently doesn’t care for the environment. Earlier she “came down heavily on Australia’s recent controversial carbon tax to tackle climate change and the equally contentious minerals resource rent tax (MRRT) to be levied on mining profits,” reported LiveMint. And with “labor costs rising,” she warned “Australia is losing in its cost competitiveness” and “is not the only country with resources’.”

Even before Friday’s federal approval, GVK was arranging project financing and “in talks with several investors, banks and export credit agencies. Of the $10 billion GVK is planning to invest on developing the three mines, the railway line and the port, it will require $2 billion to $2.5 billion of equity, and expects to raise the balance of $7.5-8 billion as debt.”

GVK’s Vice Chairman G.V. Sanjay Reddy added: “We got responses from Korean Ex-Im Bank, Chinese Ex-Im Bank and U.S. Ex-Im Bank to fund the debt portion, if we choose contractors from those particular countries. Funds shouldn’t be a problem.” Given the slowdown in America you can guess that maybe all this may involve pressure from U.S. mining equipment manufacturers lobbying for the U.S. Ex-Im Bank to approve the deal.

3. Bad timing: Australia near a recession warns Deutsche Bank

Just this week a Journal report flashed this bold headline: “Deutsche Bank Warns of Australian Recession Risk.” Get it: “The warning by Deutsche Bank comes amid rising concern that Australia’s mining investment boom, which has insulated the commodity-rich economy from a global slowdown, is waning, leading to mine expansions being scaled back and mounting job losses.”

Same day the Deal Journal Australia posted a report headlined: “Australia’s Resource Boom Losing Steam.” So why are American tax dollars being put at risk in a fading Australia economy?

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